Court Offers Guidance on Digital Tokens as Securities

• Author: Kristen L. Burge
• Pages: 24-25

Published in Litigation News Volume 45, Number 3, Spring 20 20. © 2020 by the Ameri can Bar Association. Re produced with per mission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in any

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24 | SECTION OF LITIGATION

NEWS & ANALYSIS THE LATEST DEVELOPMENTS IN LITI GATION

Because of the s tate-by-state

variation in cham perty law, commer-

cial litigators sho uld exercise cau-

tion where the laws of mu ltiple ju-

risdictions may b e implicated, u rges

Bradford S. B abbitt, Hartford, CT,

cochair of the Sec tion of Litigation’s

Commercial & Business Litigation

Committee. “The conflict between

the law in Minneso ta and New York

demonstrates th e wide disparity be-

tween states on th e viability and im -

pact of champerty and maintenance

doctrines , and the risks inh erent in

doing business across state lines,

even with a choice-of-law p rovision.”

Maslowski provides a “very pro -

tective standard f or consumer agree-

ments in Minn esota,” agrees Donald

R. Pocock, Wi nston-Salem, NC, co-

chair of the Sec tion’s Consumer

Litigation Commi ttee. He adds that

“litigation fun ding contracts can

often contain ver y expensive terms

that deprive par ties of compensation

they do obtai n.”

Pocock also see s Maslowski’s hold-

ing as having far-reac hing potential

for consumer litigation practice. “For

example, some cr edit card issuers in-

clude choice- of-law clauses in the

home state of the ca rd issuer such as

Nevada or South Da kota, and their

cardholder a greements are drafted

specificall y with those jurisdictions in

mind. Unde r the logic of Maslowski,

choice-of-law cla uses could be at risk

of not being enforce d,” he warns.

First Amendment

Bars Non-

disparagement

Clause in Settlement

By John M. Mc Nichols, Litig ation

News Contributing Editor

The City of Baltim ore cannot enforce

a non-dispa ragement clause in its

settlement ag reement with a victim

of police miscond uct. In Overbey v.

Mayor & City Counci l of Baltimore,

a divided pane l of the U.S. Co urt of

Appeals for the Fo urth Circuit held

that the First Ame ndment rights of

the victim and a lo cal news orga-

nization trumpe d the city’s right to

protect the reput ations of its ocer s

and to bring an end to p ublic con-

troversy. Although supp ortive of the

outcome, ABA Se ction of Litigation

leaders are do ubtful that the deci-

sion portend s a sea change in the

use of non-dis paragement clauses in

civil settlements.

Ashley Overbey bro ught fed-

eral and state cla ims against three

Baltimore poli ce ocers who taser-

ed and arrested h er while respond-

ing to her 911 call . After years of litiga-

tion, she agree d to settle her case for

$63,00 0. Although not a defendant in

Overbey’s lawsuit, the c ity was a party

to her settlement agreement, which

included a cla use requiring Overbey

to “limit [her] public com ments . . . to

the fact that a sati sfactory settlement

occurred involving th e Parties.” The

agreement f urther provided that she

would forfeit ha lf her recovery if she

failed to comply.

Before the city ma de the settle-

ment payment, th e Baltimore Sun

published a rep ort on Overbey’s case

that included negative comments

about Overbey by a cit y ocial. After

Overbey respond ed with comments

of her own, the city, citin g the non-

disparagem ent clause, reduced its

payment to just $3 1,500. Overbey

thereafter fil ed a second lawsuit to

compel payment of the remainder.

The Baltimore Br ew, a local news

website, joined in t he suit and alleged

that the city’s use of n on-disparage-

ment clauses im peded its ability to

gather informa tion of public concern.

On the city’s motio n, the district

court granted summary judgment and

dismissed the lawsuit, holding that

the non-disparagement clause did

not violate public p olicy and that the

Baltimore Brew lacked stand ing. The

appellate cour t reversed, citing the

“strong public interests” in “uninhibit-

ed, robust, a nd wide-open debate” on

matters of abus es of power. The appel-

late court also he ld that the Baltimore

Brew had “a lega lly protected inter-

est in newsgatheri ng” which was “in-

vaded” by the cit y’s policy, notwith-

standing that , unlike Overbey, it had no

claim for monetary damages.

“The moder n import of New Yor k

Times v. Sullivan, outside the context

of a libel case, is th at citizens should

be critical of the gover nment. The

Overbey case f urthers that princi-

ple,” notes Jonat han Peters, Athens,

GA, chair of the F irst Amendment

Subcommitte e of the Section of

Litigation’s Civil Right s Litigation

Committee. I n fact, the “most tell-

ing language i n the opinion” was the

appellate court’s characterization of

the non-dis paragement clause as “a

‘hush money ’ arrangement,” which is

“strong langua ge directed at a public

entity,” Peters adds .

Section lead ers also took note of

the appellate cou rt’s focus on the right

to collect inform ation, the basis of the

Baltimore Brew’s standi ng to sue. “The

First Amendment has historically been

interpreted as protecting citizens ’

rights to communi cate. It’s not been as

good at protectin g the right to gath-

er news,” says Peters . In this regard,

Overbey “is on e of very few decisions

focusing on this pa rticular component

of the First Amen dment’s panoply of

protections in sup port of robust public

debate,” he adds.

Despite this impo rtant develop-

ment, it is unlikel y that Overbey will bar

the use of non-d isparagement claus-

es in civil settlem ents in general. For

one thing, the a pplication of the First

Amendment t urned on the fact that

one of the partie s was a state actor.

However, Overbey may not apply

in all instance s where a state actor

is involved, as not all c ases involv-

ing government im plicate the same

interests. Th e subject of police mis-

conduct is “ver y high profile at the

present time,” remarks Franchesca

L. Hamilton -Acker, Lafayette, LA ,

the Section’s Secretary and Chief

Diversity Ocer. “The Overbey deci-

sion emphasizes th e importance of

keeping government honest when its

powers are as expans ive as those of

the police,” observes Peters.

Court Ofers

Guidance on Digital

Tokens as Securities

By Kristen L. B urge, Litigation News

Assoc iate Editor

The U.S. S ecurities and E xchange

Commission (S EC) convinced a